Markets were basically undecided on Monday. SPY gapped up 0.18%, QQQ gapped up 0.22%, and DIA opened up just 0.06% higher. At that point, all three major index ETFs wobbled around on that opening level. Then starting at about 11:15 a.m., the SPY and QQQ began (followed at noon by the DIA) a steady selloff that lasted until 2:15 p.m. From there, all three rallied to recross the morning gap and end in bullish territory. This action gave us white-bodied, indecisive candles in all three of the index ETFs. The SPY and DIA printed Doji-type candles while the QQQ printed a Spinning Top candle. All three major index ETFs remain stretched above their T-line (8ema) and stayed above their 50sma (in the DIA also above the 200sma which is just below its 50sma). This happened on far-below-average volume in all three of those ETFs.
On the day, eight of the 10 sectors were again in the red with Energy (-1.13%) leading the way lower while only Consumer Defensive (+0.11%) and Technology (+0.02%) were able to hang on to green territory (barely at that). At the same time, the SPY gained 0.22%, DIA gained 0.12%, and QQQ gained 0.41%. The VXX fell another 3.31% to close at 20.48 and T2122 dropped out of the over-bought territory and back into the mid-range at 67.37. 10-year bond yields climbed to 4.659% and Oil (WTI) gained slightly to close at $80.88 per barrel. So, Monday gave us a sixth-straight day of gain in the SPY and DIA and the seventh in the QQQ. However, this happened on very indecisive candles and all three of the major index ETFs remain very stretched.
There was no major economic news reported Monday. However, there were some Fed speakers. Fed Governor Cook told a Duke University event the rising short-term bond yields are not tied to the Fed’s policy plans. She also said, “I would say that an expectation of higher near-term policy rates does not appear to be causing the increase in longer-term rates.” She went on to imply that she is in the “no more hikes” camp by saying “we hope that this will be restrictive enough such that we can return to our 2% target over time.” However, on the other side, the Wall Street Journal reported Monday that Minneapolis Fed President Kashkari said he would prefer to err on the side of tightening too much rather than not enough. Kashkari said, “Undertightening will not get us back to 2% in a reasonable time.” The interview quoted him as going on to say “I am not ready to say we are in a good place (yet)” (in terms of having a high enough Fed Funds rate). Elsewhere, a Fed report released Monday said bank loan officers are reporting a slowing of the tightening of credit requirements as well as (or maybe due to) a weaker loan demand. The report said 60% of banks cite moderately to substantially weaker loan demand in Q3 (up from 43% in Q2).
In stock news, on Monday, C announced that they are aiming for at least a 10% cut to its workforce as part of CEO Frasier’s restructuring. (For reference, C has 240,000 employees at this point. So, we are talking about something like 24,000 layoffs.) Later, CHE announced its board had approved a $300 million increase in its share buyback plan. At the same time, the CEO of EQT said the US is facing an imminent energy crisis solely due to public resistance to building new pipeline capacity. He went on to say that natural gas pipeline construction fell to a record low in 2022 and capacity is down almost 900 million cubic feet per day versus the 28 billion cu.ft./day in 2017. Later, HGV announced that it had acquired BVH for $1.5 billion (including debt). BVH shares shot almost 107% higher on the news. Elsewhere, AIG announced it will raise funds by issuing a 50-million share secondary offering of CRBG. (The underwriters of the secondary, GS, and JPM will have the option to buy an additional 7.5 million shares on top of the 50 million.) In related news, AIG also initiated a tender offer to rebuy $1 billion worth of its outstanding debt securities. At the same time, GM announced (that strikes) it had reversed a previous decision and rehired the 1,245 Brazilian employees it had laid off at the Sao Paulo S-10 pickup and Trailblazer engine plant. Later, BCSF announced it was buying consulting firm Guidehouse from private Veritas Capital for $5.3 billion. Meanwhile, WELL announced plans to offer $3 billion worth of common stock to fund property acquisitions. At the same time, CPG announced plans to acquire HHRS for $15.33 per share. Finally, on Monday night CNBC reported that the GM Cruise robotaxis requires human assistance every four to five miles. The report said GM maintains one “driver assistant” for every 15-20 robotaxis to get the car past any tricky driving. The report said assistants provide “wayfinding data” to the onboard computer and do not take over to remotely drive the vehicle.
In stock government, legal, and regulatory news, a lawsuit against WFC and Navy Federal Credit Union has moved to federal mediation. The lawsuit alleges the financial institutions should have prevented the customer from transferring $3.6 million from his savings to a foreign entity (scam) because the customer had suffered a stroke and was diminished enough that his account had been flagged by Adult Protective Services. Later, MULN announced that it had been given EPA certification for its Class 1 EV cargo vans. Elsewhere, the US Dept. of Ag reported that TSN is recalling 30,000 pounds of fully cooked dinosaur-shaped chicken nuggets after USDA inspectors found small pieces of metal in samples of the product. Later, the FAA announced it would hold an additional round of runway safety meetings at 16 more airports in the coming weeks after recent troubling close-call incidents. (LUV, FDX, and most of the major airlines as well as airport officials are required to attend.) At the same time, TM confirmed the NHTSA report that it is recalling 1.9 million RAV4 SUVs over a defect that could cause a fire. Later, NKE filed suit against SKX and private New Balance over alleged patent infringement. Then after the close, GE agreed to pay $9.4 million to settle US federal claims that it sold “uninspected” and “out of spec” parts to the US Army and Navy. At the same time, GOOGL was hit with a second major antitrust case, this one filed by Epic Games and related to Google Play Store monopoly over Android app distribution. After the close, a federal judge pared back a US government lawsuit against drug distributor COR (formerly ABC) for its part in the opioid epidemic. (The Dept. of Justice alleges COR changed its order monitoring policies, dramatically reducing oversight of opioid orders.) Finally, the FTC has sent requests to TPR and CPRI for more information about the planned $8.5 billion purchase of CPRI by TPR.
After the close Monday, ARKO, CNO, COHR, CXW, FANG, FN, FSK, IFF, JELD, NXPI, PARR, O, RNG, SVC, TRIP, UIS, and WMK all reported beats on both the revenue and earnings lines. Meanwhile, BKD and TDC beat on revenue while missing on earnings. On the other side, CBT, CE, CLOV, CTRA, GT, ICUI, RHP, STRL, and VRTX missed on revenue while beating on earnings. However, ATSG, COMP, CRGY, and SANM missed on both the top and bottom lines. It is worth noting that CE and SANM both lowered their forward guidance. At the same time, CXW, FN, RNG, and STRL raised their guidance.
Overnight, Asian markets were nearly green across the board with only Thailand (-0.18%) in the red. Meanwhile, South Korea (+5.66% not a typo, huge rally after a ban on short-selling), Japan (+2.37%), Shenzhen (+2.21%), and Hong Kong (+1.71%) led a huge rally. In Europe, bourses are more mixed with an even split of green and red at midday. With that said, the big boys of Europe are red with the CAC (-0.36%), DAX (-0.21%), and FTSE (-0.05%) leading the region lower in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing toward a modest green start to the day. The DIA implies a +0.06% open, the SPY is implying a +0.13% open, and the QQQ implies a +0.18% open at this hour. At the same time, 10-year bond yields are up slightly to 4.595% and Oil (WTI) is up 1.42% to $81.65 per barrel in early trading.
The major economic news scheduled for Tuesday includes September Imports, Sept. Exports, and Sept. Trade Balance (all three at 8:30 a.m.), EIA Short-Term Energy Outlook (noon), and Weekly API Crude Oil Stocks (4:30 p.m.). We also hear from Fed members Waller (10 a.m.) and Williams (noon). The major earnings reports scheduled for before the open include AHCO, ADV, APD, GBTG, AMRX, BCO, CG, CLVT, CNHI, DHI, DDOG, DK, ELAN, EMR, EVRG, FIS, GEN, GEO, GFS, INGR, KKR, LCII, MLCO, PRGO, RXO, TAC, UBER, VTNR, VST, WAT, and ZBH. Then, after the close, AMRK, AKAM, AEL, ANDE, BHF, CIVI, COTY, CPNG, CAPL, DAR, DVA, DVN, EBAY, EC, PLUS, EXR, FNF, GILD, GO, GXO, IAC, IOSP, JKHY, JHX, KD, MASI, DOOR, MOS, MRC, OXY, OVV, PAAS, PR, PRI, PRIM, RXT, RIVN, HOOD, SNBR, STE, TKO, TOST, and VTRS report.
In economic news later this week, on Wednesday, we get EIA Crude Oil Inventories and hear from Fed Chair Powell as well as Fed member Williams again. On Thursday, we have the Weekly Initial Jobless Claims, WASDE Ag Report, and Fed Chair Powell speaks again. Finally, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations are reported.
In terms of earnings reports later this week, on Wednesday, we hear from ADNT, BIIB, GIB, CRL, CCO, SID, EDR, GTN, IBP, BEKE, K, MIDD, NFE, NYT, NXST, ODP, PTEN, PFGC, PLTK, PSNY, RL, RPRX, REYN, RBLX, SEAS, FOUR, SWX, SPTN, STWD, SHOO, TRP, TEVA, UAA, UWMC, VSH, WBD, KLG, AE, AFRM, ALTG, AMC, APP, ASH, ATO, GBS, ATG, CENX, CTVA, ENS, FLT, G, HP, HUBS, JXN, JAZZ, KGC, LYFT, MFC, MATV, MGM, SU, TTWO, MODG, TTEC, TWLO, UHAL, VSAT, and DIS. On Thursday, AEE, MT, BDX, CLMT, TAST, COMM, DBD, EPC, GLP, GRAB, HBI, HE, HBM, IHRT, KELYA, LI, EYE, NOMD, ACDC, RCI, SN, SCSC, SONY, SLVM, TPR, TDG, USFD, WRK, WWW, YPF, CANO, CPRI, FLO, HOLX, ILMN, LNW, MTD, NWSA, NGL, PBR, RBA, STN, TTD, TPC, U, and WYNN report. Finally, on Friday, AQN, AU, and STNE report.
In miscellaneous news, GS said Monday that, in their estimation, the current high yield of Treasury bonds is the equivalent of four quarter-point Fed rate hikes. This reduces the need for additional FOMC rate hikes (again, by their estimate). Elsewhere, OpenAI announced the next version of its ChatGPT AI app. At the same time, Natural Gas prices fell 7% Monday after the EIA reported record output and updated its Winter forecast to be milder. Finally, in late-breaking news, WE filed for bankruptcy as had been expected for some time.
So far this morning, AHCO, AMRX, BCO, CLVT, DHI, DDOG, DK, ELAN, FOR, GBTG, GEO, GFS, KKR, RXO, SGRY, TAC, VTNR, AND ZBH all reported beats on both the revenue and earnings lines. At the same time, APD, CG, EVRG, INGR, PRGO, AND WAT missed on revenue while beating on earnings. On the other side, UBER beat on revenue while missing on the earnings lines. Unfortunately, ADV, CNHI, EMR, LCII, VST, and FIS missed on both the top and bottom lines. It is worth noting that CNHI and SGRY lowered their forward guidance. However, DDOG, EMR, and VST raised their forward guidance.
With that background, it looks like Mr. Market is again undecided early in the day. The Premarket started lower in all three major index ETFs. From that point, all three that printed small, indecisive, and mixed-color dandles during the early session. All three remain well above their T-line (8ema) and 50smas. So, the Bulls still have the control of the short-term trend. Keep in mind that all three remain 4%-5% below their summer highs. So, the Bears remain in control of the longer-term trend. In terms of extension, all three remain a bit stretched from their T-line but the T2122 indicator has dropped back into its mid-range. So, while there is some room to run in either direction, the market remains in need of a pause or pullback to relieve extension. (However, as always, remember that the market can stay stretched longer than we can stay afloat knowing it has to turn soon.) So, be aware of that potential volatility.
As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!
See you in the trading room.
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